Mineral Makers (MM) Company keeps its inventory records using a perpetual system. At December 31, 2014 the unadjusted balance in the Inventory account is $64,000. Through a physical count on December 31, 2014, MM determines that its actual inventory at year-end is $62,500. Which of the following is true regarding the statement of financial position and the income statement of MM at December 31, 2014?

Question

Quizplus · Accepted Answer

Since the actual inventory is less than the recorded inventory, the Inventory account needs to be decreased by $1,500 through a credit entry. This credit entry will result in a corresponding debit entry to the Cost of Goods Sold account, increasing it by $1,500. Therefore, Inventory is decreased and cost of goods sold is increased by $1,500.

Mineral Makers (MM) Company Keeps Its Inventory Records Using a Perpetual